Stocks Lose Momentum Amid Fed Jitters as Bitcoin Tumbles

A rebound in tech shares lost steam as caution returned to Wall Street ahead of a flood of economic data and renewed doubts about whether the Federal Reserve will cut rates in December. US bonds also weakened.

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The market enthusiasm that followed the end of the historic US government shutdown quickly gave way to volatility as several Fed officials tempered expectations for near-term easing. Momentum-heavy sectors especially artificial intelligence names swung sharply throughout the week.

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Bitcoin, meanwhile, showed only marginal gains for 2025. After briefly wiping out a 1.4% loss, the S&P 500 ended the session virtually flat, while Nvidia Corp. edged higher ahead of its earnings report.

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Optimism around lower borrowing costs and the powerful tailwind from AI has fueled a strong rally since the April market meltdown, encouraging traders to overlook elevated valuations.

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Corporate earnings across major tech players have generally met or exceeded expectations, though guidance around future interest rates remains cloudy. As Nvidia prepares to report on Wednesday, options markets are pricing in a 6.2% move in either direction its largest implied swing in a year.

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“Nvidia’s numbers will be a major moment for markets and the broader AI trade,” said Kyle Rodda of Capital.com. “The results could either calm concerns around AI valuations or ignite them even further.”

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Next week’s reports from retail giants Walmart Inc. and Target Corp. will also give investors a clearer sense of consumer spending trends a critical driver of the US economy.

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The S&P 500 held above its 50-day moving average after briefly dipping below that level, while a basket of megacap stocks snapped a three-day slide. The 10-year Treasury yield rose three basis points to 4.15%. Overseas, UK markets took a hit as speculation around the government’s upcoming budget stirred worries about national finances. Oil prices advanced amid rising geopolitical tensions involving Russia and Iran.

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“Stocks are likely to recover, but dip buyers have been burned recently, so the rebound could take time,” said Bob Lang, founder of Explosive Options.
Rotation into defensive areas, including health care and consumer staples, became more noticeable this week, signaling those sectors may have found a bottom, said Ken Mahoney of Mahoney Asset Management.

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“That’s not the trend you want if you’re holding AI or adjacent tech names,” Mahoney added. “It almost feels like a mini bear market in certain pockets, even though the S&P 500 is still near its highs.”

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Daniel Skelly, who leads market research and strategy at Morgan Stanley Wealth Management, echoed that view. “This isn’t anything close to a tech crash, but it does feel like the market is reassessing tech’s leadership,” he said. Even so, Skelly noted that the long-term investment case for AI remains intact, while health care continues to be one of the market’s most underappreciated stories.

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Market breadth remains a concern, signaling the need for more tactical positioning and selective sector shifts, according to Craig Johnson of Piper Sandler. The S&P 500’s ability to stay above its 50-day average is key; losing that support could open the door to a deeper pullback.

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“The dominant pattern has been dip-buying, which may offer some support here,” said Melissa Brown of SimCorp. “Retail traders may be rattled short-term, but they’re likely to return if they still believe in the long-term themes behind the hardest-hit names.”

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Still, Brown cautioned that a more durable rebound may require the return of government data so investors can accurately assess economic conditions and inflation trends.

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“A true recovery depends on continued economic growth and inflation staying contained,” she said.

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As labor-market reports and inflation data resume, fundamentals should help investors distinguish between a temporary pullback and a new trend, said Mark Hackett of Nationwide. A growing number of Fed officials have questioned the need for a December cut and some oppose one outright. Whether they can sway voting members of the FOMC remains to be seen, especially with several policymakers concerned about a weakening job market.

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The debate intensified after Chair Jerome Powell recently emphasized that another cut is far from guaranteed. Markets have taken the hint: expectations for a December cut have fallen below 50%, compared with nearly full pricing before the Fed’s October meeting.

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“What began as a routine disagreement over a December cut now risks evolving into a broader governance challenge for the Fed,” said Krishna Guha of Evercore. “Without clearer data, Powell is in a difficult position. Cooler heads and compromise are essential.”

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Guha said he still expects a “hawkish cut,” though the odds have dropped.

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“We think a soft October jobs report and subdued core CPI will push the FOMC toward another 25-basis-point cut,” said Gennadiy Goldberg at TD Securities. “But the decision will likely be contentious, with a high chance of hawkish dissent.”

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Despite the cautious messaging from Fed speakers, Ulrike Hoffmann-Burchardi of UBS Global Wealth Management stressed that the final call will depend on incoming data. She noted that even without an unemployment rate in the October jobs report, payroll figures should provide a solid read on labor conditions. Private indicators and sentiment surveys could also support further easing if inflation cooperates.

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As investors braced for the incoming data wave, the latest risk-off move dragged Bitcoin further from its October record. The world’s largest cryptocurrency fell below $95,000, extending losses tied to the massive $19 billion liquidation on Oct. 10 an event that erased more than $1 trillion from total crypto market value, according to CoinGecko.

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